PF guidelines for outbound Indian employees need some more clarity

Man has always faced economic uncertainties brought about by death, disability, unemployment, old age, etc. The concept of social security programmes evolved in most countries to provide a safeguard against such uncertainties, casting legal and social obligations in the hands of the employer.

However, such obligations become an additional burden for an employer having mobile employees as it not only compels the employer to comply with the laws of the land but also with the laws of the host country with no real benefits from contributions made in the host country. To overcome such a situation, nations sign a bilateral agreement, known as Social Security Agreement (SSA), which generally provides for equality of treatment and avoidance of double coverage.

Unlike social security schemes in developed countries, the Indian social security schemes per se are different in their operation and scope. In India, retirement benefit is linked with the contribution made by the employee, employer and accretion thereof; in the developed nations, the benefit is not linked to the amount of contribution made by a person.

Also, in India the benefit is mandatory only for employees with a base salary of 6,500 per month or less. Accordingly, in the past, foreign citizens coming on an assignment to/employment in India did not have to contribute mandatorily to the Indian social security scheme. But, Indian workers going abroad had to pay social security taxes in the host country. Most of these contributions could not be withdrawn when the Indian worker returned.

To overcome such anomaly, with effect from November 1, 2008, the ministry of labour and employment amended the provident fund (PF) scheme to extend its applicability to 'international workers' (IWs). In case of IWs, the PF contribution is payable without any cap on salary and de minims period of stay in India for its applicability. The contribution is payable on the total PF part of the salary earned irrespective of the place/currency of payment. This has created a lot of concerns for many MNCs deputing/seconding employees in India.

The silver lining in such provisions was the erstwhile relaxed withdrawal rules, which allowed international workers to withdraw the full provident fund balances (including accretions) at the time of their repatriation even if there was no social security agreement in place with their home countries. Hence, complying with such provisions was considered as a temporary blockage of funds. However, in about two years after the amendment, the following amendments were made to the PF scheme with effect from September 11, 2010.

1. Withdrawal from the PF account is permissible only on retirement from service after attainment of 58 years or retirement on account of permanent and total incapacity to work due to bodily or mental infirmity

2. Assignees covered under SSA can withdraw from PF/pension fund upon satisfying conditions specified in the SSA

3. No withdrawal from pension fund is permissible where IWs are seconded from a non-SSA country

4. Cap on salary ( 6,500 pm) up to which the employer's share of contribution has to be diverted to pension fund has been removed. As a result, 8.33% of salary subject to PF contribution is considered towards pension fund and balance 3.67% is considered towards the provident fund. This brings down the amount eligible for PF withdrawal in case of IWs from non-SSA countries

Courtesy:ET